Common Mistakes Contractors Make in Construction Contract Reviews

In construction projects, contracts are the building blocks of relationships and the delivery of construction projects themselves. However, many contractors make mistakes when examining the contracts, especially those who might not have formal legal experience. Such mistakes can result in disagreement, time loss, or revenue loss. Following are some of the main errors that contractors tend to make while reviewing construction contracts and how to avoid them.

1. Not Reading the Entire Contract

Assuming the contractor has not read the whole agreement is one of the most fundamental and egregious mistakes that they engage in. Contracts may be lengthy, and sometimes it seems blurred with lots of legal jargons making onerous and sometimes it may be tempting to read through some or skip a section that does not seem to apply or is uninteresting. However, ever clause in a construction has a purpose and one may end up being locked in obligations that he never would have foreseen.

Solution: Spending an ample amount of time should be dedicated to reading the contract in detail. If the contract is detailed, seek legal advice from an attorney who specialises in construction law to explain the fine print.

2. Ignoring the Scope of Work

The work contained in the scope statement defines activities to be performed, what is to be provided, and who is to do it in a construction undertaking. Poor definition of the scope may result in conflict, variations, and extension of time control when the project is underway. One of the most common mistakes contractors make is not properly identifying the work that needs to be done, its type and extent, and ensuring that there isn’t room for confusion later.

Solution: It is very important that the authorised scope of actions is obvious and co-ordinate with other activities. It must be very specific to include material to be used, date of completion and responsibilities in order to reduce conflict.

3. Overlooking Payment Terms

Export control terms are one of the distinctive aspects of a construction contract that may be paid little attention at times. Contractors could expect that they have provided adequate cash for project delivery, or else they could fail to comprehend all the conditions that surround the payment methods including retainage, progress payments or milestone payments.

Solution: Look the payment terms sharply. Learn when and in what circumstances you will be paid and when and in what way payments may be less or not be made at all. Additionally, it confirms whether retainage percentage to be withheld will be and the time they will be released back.

4. Not Addressing Change Order Procedures

Any construction project will always have discrepancies, which is the reason you have change orders. Nevertheless, contractors overlook the process for issuing and approving change orders for many of them. When alterations in the work parameters are inevitable, this can cause misunderstandings and disagreements.

Solution: Use templates that outline how the contract should address change orders, and more so, ensure that the change order process is very clear. Explain who is to have the responsibility of making the changes, how they are to be authorised and who is to price them so that the usual problems arise over changes in the project do not happen.

5. Overlooking Dispute Resolution Clauses

It is not that no contractor ever expects to encounter a dispute; in fact, disputes are fairly routinary in the construction industry. The contractors tend to overlook the dispute resolution clauses, because they never seem to require their usage. More often than not these clauses provide a mechanism for dealing with disputes by litigation, mediation or arbitration.

Solution: Non-lawyers often don’t clearly understand their rights in regard to dispute resolution clauses, so you must pay special attention to them and understand your possibilities. Another area likely to. Be covered in the contract is the need to enshrine a favourable mode of resolving an issue, which is cheap and faster than lawsuits.

6. Missing Deadlines for Submissions and Notifications

Almost all construction contracts have provisions for time bounds within which various documents are to be submitted and notifications are to be given and actions (like claims or disputes) are to be taken. These deadlines are usually missed by contractors without their realising that it leads to not being able to claim extensions or additional costs.

Solution: It is also important to emphasise any time bar provisions to the contract. Submission of papers and reports should not be a surprise to anyone involved in the project Therefore, it is advisable to develop a project calendar that schedules all the construction management submissions or to use construction management software to remind the members on the due dates of the constructed papers.

7. Ignoring Termination and Suspension Clauses

Renunciation clauses/rejection clauses determine in which conditions a contract is terminated or suspended. If these clauses are not reviewed, then a contractor can find themselves in a position where the contract can be terminated at any time without fair compensation.

Solution: Termination and suspension should also be checked thoroughly. That termination is on fair terms and that both parties have an operating right of termination under reasonable circumstances. Explain what occurs in the contractor’s circumstance in which he or she’s the loser and the suspension of the contract and the payment and project duration consequences.

8. Overlooking Liability and Indemnification Provisions

Legal warranties and holds shift the burden of performance or other risks and losses that assume in a project. Most contractors pay little attention to such provisions as they have no idea of the effect that they can have in the event of a mishap.

Solution: Make doubly sure that you are bearing appropriate risk and the responsibility for such risks are appropriately apportioned between the parties such that contractual provisions for indemnification are not onerous on the contractor. If necessary, one should consult a lawyer so that such clauses are fair in between the two parties.

9. Failing to Verify Insurance Requirements

Construction contracts usually contain provisions where contractors are obliged to take out specific type of insurances, for example, general liability insurances or worker’s compensation insurance. This is significant because failure to meet these specifications might expose the contractors to contractual violations or expensive litigation disagreements if the worst happens on site.

Solution: Make sure that the insurance management is in terms of the contract as you verify your insurance policies. If the extra coverage is needed, it should be secured before work is commenced to minimise chances of a breach.

10. Neglecting Local Laws and Regulations

One of the common mistakes that contractors make is to forget that the contract does not conform to local laws, regulations, or building laws. Failure to meet these requirements may dis-proportionately cause project delay, legal fine or even contract cancellation.

Solution: The contractor must always ensure that the contract that has been developed complies with the particular country, state, city codes or ordinances, and industry standards.

Construction contracts are specialised legal instruments that definite a great deal of detail before signing them. Through the usual errors noted during the contract reviews, the contractors will be able to safeguard themselves from most of the potential legal loopholes, financial responsibilities, and project hitches. When it comes to contracts, contractors should ensure that they carefully scrutinise all possible clauses and even seek counsel from legal practitioners when necessary, the move can save the contractors lots of heartache and expense in the future. As much as many new and old contractors try to rush through the process of reviewing their contracts in the construction industry, it is quite essential to ensure that you dedicate ample time and effort to the procedure.